§936b Sale or Prepayment of Direct or Insured Loans

Summary

Most federal electric loans cannot be sold or paid off for less than the amount still owed. But if a borrower asks, an electric loan made before May 1, 1992, or any loan advance that has been outstanding for at least 2 years, can be sold or prepaid at the lower of the remaining principal or the loan’s present value. The present value is figured by discounting the loan from its face value at the rate the Secretary sets. That rate equals the Treasury Department’s current cost of funds for debts with a similar time left. If the borrower uses tax-exempt financing, the discount is changed so the borrower gets the same benefit as with fully taxable financing. The borrower must say in writing if the financing is tax-exempt and follow any reasonable conditions the Secretary sets. If a borrower prepays, they can still get help under the program later, but there are waiting rules. A borrower who prepays at the Treasury-based discount normally cannot get new loans for 120-months unless the Secretary allows it. If a borrower prepaid before October 21, 1992, at a larger discount, they generally cannot get loans for 180-months unless the Secretary allows it, or until they repay the extra discount plus interest at the Treasury’s average borrowing cost. Old agreements about restoring loan eligibility before October 21, 1992, are superseded. A non-defaulting distribution borrower may get the discounted prepayment, and defaults by a power seller do not count against that borrower. Also, when a borrower's organization results from a merger with a party that prepaid before October 1, 1987, the merged borrower may prepay within one year under the same discount rules and tax-exempt adjustments. Definitions: direct loan = loan under section 904; insured loan = loan under section 935.